Goldman's go to bull, Jim O'Neill, starting to get decidedly bearish. Also, as if economic commentary interspersed with soccer from Janjuah wasn't enough, O'Neill is here to offer the Red Devil perspective.
Exciting with Risks......and Worried........
Week 3 of 2010 comes to an end,……not a pleasant one. Anyhow, in the three weeks so far, we have witnessed evidence of the things that support why our views are "exciting" and, unfortunately, more important ones of why " with risks" has been there. Of possible interest;
1. BRICs…………For those of you that often doubt much of the data from China and elsewhere in " BRICland", the FT has kindly being doing a special all week long on the whole theme, with lots of colourful local stories. Over the weekend, if you have some time, take a gander…
The data this week, including news of their remarkable success of achieving 8.7pct GDP growth for 2009, which continues to broadly highlight the remarkable divergence between the C , most of the rest of the BRICs, and large EM , and the so-called developed West. On balance , the data reported for December was slightly softer than expected, but in the general scheme of things, it was all remarkably strong. And as discussed in the media, we count the weeks until China now overtakes Japan to become the world's number 2.
I have been out and about this week, including brief trips to Frankfurt and Brussels , as eell as meeting clients in and around London. I have met with more companies who have large business expansion taking place in China, and without exception, they all have talked about their own anecdotes to back up the flavour of the reported data.
The continued "new issue" is of course, inflation, and this week's reported rise in PPI and CPI , on top of the strong data, has resulted in more concerns about fresh specific and additional steps to tighten policy. This is almost definitely coming, and it might not "feel" good when it comes. However, and I am already starting to get this feeling, people shouldn’t go overboard about this. China wants to slow things down a touch, reduce the risk of a significant pickup in inflation, and they are pretty likely to succeed. So while Chinese related markets have probably got further to correct, I can't see a real "bear market" as such. Indeed, the general wide 2,600-3,400 for the A -share market that I have believed in since the late Summer 2009 peak looks set to prevail to me.
3. Coincident and lead indicators. We have had some quite mixed data again this week, with a couple of new , slightly positive surprises in Japan and Europe ( after disappointments at the margin previously ) but in terms of new information, and high frequency, and as a key part of our own global leading indicator, the GLI, the Philly Fed disappointed yesterday. Linked to this, while our year on year Advanced GLI for January has moved back into clear positive territory- 1.2pct-, the momentum is showing signs of slowing. The Euro area PMIs hint at the same also..
4. Policy in Europe. As I mentioned , I spent yesterday in Brussels, and left feeling quite disappointed about policy "imagination" even by the standards of past thinking about such issues re Europe. I get the impression that the new appointments in Brussels are not going to be taking us anywhere, and I don’t think any are equipped to deal with new shocks, or frankly, the Greek issue. I , therefore continue to suspect that the CDS could widen out to levels way beyond much being generally banded about. On top of everything else, what incentive do the big guys have to stop it? On top of making the " Club Med" countries think more seriously about the underlying issues, the Euro is now dropping because of this also, which of course, is an aspect that pleases EU and ECB policymakers……..better than anything else they must have spent endless hours thinking about ways to weaken the Euro….
5. Mood in Germany? After having a dinner with a group of leading CEO's and CFO's, and seeing lots of investors, I am not really sure. Lots of gloom about Russia stood out, but on everything else, people seemed very mixed.
6. Washington and US financial conditions…
Which leaves me to this topic. If the "shock " of the UK supertax wasn’t enough, now we have out of the blue, Tall Paul Volcker's ideas suddenly appearing as US "policy" on banks. There are an enormous number of policy issues raised by this development, such as ; will the proposals ever come to pass, should they be seen in the context of the Massachusetts development, who is running economic and financial policy, etc and plenty more, that I don’t think it is appropriate for me to write about , at least in this kind of format. But the core issue to me, is as follows;
a/ this is a second major, and much bigger "anti current practises" surprise to the financial system since mid December, and at least for me, both have been quite a surprise, and completely at odds with the co-ordinated G20 flavour of much of late 2008 through most of 2009. How many more, such surprises, are coming?
b/ much more importantly than being surprised, what is this going to do to financial conditions? One would have thought policymakers would be eager to avoid an inadvertent tightening of financial conditions, given what happened in 2008 and the whole parallel with the initial recovery from 1929 before you know what………but the style in which both the UK, and now the US policies have appeared suggest that this is not at the forefront of thinking. I guess this latest development at least adds to the probability of our Fed Funds forecast being right, but ….
I have been thinking since the Summer, with some confidence that the upside risks to a US recovery were likely to keep re-appearing, but given both the political and policy events, and with this fresh major degree of uncertainty introduced to the financial markets, upside US risks are increasingly going to relate purely to one area, exports…
Last Friday , I had an interesting debate with an extremely well known bear , for the amusement of some hedge fund clients. If it would have been this morning, I would have found it much tougher to battle him………
7. United. And then, to top off such a fun week is this ongoing saga…………….Let's see if Rio can cheer us up tomorrow.
Thank God for the BRICs and Rooney…….